BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 923| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 923 Author: Hernandez (D) Introduced:1/28/16 Vote: 21 SENATE HEALTH COMMITTEE: 7-0, 3/30/16 AYES: Hernandez, Hall, Mitchell, Monning, Pan, Roth, Wolk NO VOTE RECORDED: Nguyen, Nielsen SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 SUBJECT: Health care coverage: cost sharing changes SOURCE: Author DIGEST: This bill prohibits a health plan contract or health insurance policy from changing any cost sharing requirements during the plan or policy year, except when required by a change in state or federal law. Applies this prohibition to non-grandfathered health plan contracts and health insurance policies in the individual and small group markets and grandfathered health plan contracts and insurance policies in the individual market that are issued, amended, or renewed on or after January 1, 2017. ANALYSIS: Existing law: 1)Establishes the Department of Managed Health Care (DMHC) to regulate health plans and the California Department of Insurance (CDI) to regulate insurers, including health SB 923 Page 2 insurers. 2)Prohibits a health plan or health insurer, with regard to group contracts, from changing the premium rates or applicable copayments, coinsurances or deductibles for the length of the contract, except, when authorized or required in the contract, when the contract is a preliminary agreement subject to execution of a definitive agreement, or when the plan and contract-holder mutually agree in writing. (Enacted prior to the Affordable Care Act [ACA]). 3)Defines rating period for the individual market as the calendar year for which premium rates are in effect, and for the non-grandfathered small group market as the period for which premium rates established by a plan are in effect and are no less than 12 months from the date of issuance or renewal of the plan contract. (Enacted after the ACA) This bill: 1)Prohibits a health plan contract or health insurance policy from changing any cost sharing requirements during the plan or policy year, except when required by a change in state or federal law. 2)Applies 1) directly above to non-grandfathered health plan contracts and health insurance policies in the individual and small group markets and grandfathered health plan contracts and insurance policies in the individual market that are issued, amended, or renewed on or after January 1, 2017. 3)Defines cost sharing as any copayment, coinsurance, deductible, or any other form of cost sharing by the enrollee other than the premium or share of premium. 4)Defines plan year and policy year as the meaning set forth in federal regulations. Defines plan or policy year for non-grandfathered health plan contracts and health insurance policies in the individual market as the calendar year. Comments 1)Author's statement. According to the author, the ACA provides many new consumer protections to make health insurance more SB 923 Page 3 affordable and available. These include protections on cost-sharing, such as actuarial value requirements and placing annual limits on out-of-pocket costs. One of the many individual market reforms California enacted while implementing the ACA was a provision that prohibited plans and insurers from altering premiums during the plan year. This essential patient protection, while meaningful on its own, does not currently apply to cost sharing requirements across all markets. This bill will ensure health care consumers are actually provided what they were promised when signing up for coverage by prohibiting a health care service plan contract or health insurance policy from changing any cost sharing requirements during the plan year. Numerous consumer protections passed by California over the last several years were designed to put an end to "bait and switch" tactics previously employed by health plans and insurers. This bill continues that tradition by advancing the basic tenet that consumers should get what they pay for. 2)Health Insurance and the ACA. The health insurance market is segmented into group and nongroup markets. In the group market there are companies that issue health insurance plans or policies to large employers or small employers, or both, and in the nongroup market plans or policies are issued to individual purchasers who buy insurance for themselves and/or their family members. Both small group and individual insurance plans or policies are available for purchase in health benefit exchanges and outside health benefit exchanges (Covered California in this state). The laws that apply to specific market segments are not always the same. The ACA represents a major expansion of U.S. health care coverage through an expansion and simplification of the Medicaid program and the adoption of major reforms of the health insurance market. Most transformational are changes to the small group and individual insurance markets, such as mandating guaranteed issuance of coverage, eliminating pre-existing condition exclusions, and limiting factors upon which premium rates can be developed. The ACA requires carriers to provide essential health benefits with standardized tiers of cost-sharing. Under the ACA, out-of-pocket limits for health plans are subject to the limit that currently applies to health savings account-qualified health plans. ACA regulations on grandfathered plans or SB 923 Page 4 policies address how health plans or policies can retain a "grandfathered" exemption from certain ACA requirements. Some, but not all, of the ACA requirements apply to grandfathered plans or policies, and there are differences in requirements that apply to grandfathered large group, small group, and nongroup plans or policies. The ACA requires health plans and insurers offering non-grandfathered health plans or policies inside and outside of health benefit exchanges in the individual and small group markets to assure that any offered product must meet distinct levels of coverage called "metal tiers." Each metal tier corresponds to an actuarial value, calculated based on the cost-sharing features of the plan. Actuarial value is the percentage of health care costs that would be paid for by a person's health plan or policy coverage, versus out-of-pocket costs at the point of service (e.g., co-payments, co-insurance or the deductible). For example, a health plan or policy with an actuarial value of 60% would pay for 60% of an average individual's health care costs (using a standard population), while the individual would be responsible for the remaining 40%. Federal law, effective 2014, requires health plans and health insurers to categorize products based on actuarial value as follows: Bronze - 60%, Silver - 70%, Gold - 80%, and Platinum - 90%. For both small group and individual group plans or policies, California law establishes either a 12 month or calendar year rating period meaning rates have to be based on a 12 month period. Prior to the ACA, California law already prohibited in group contracts, plans and policies which allowed changing the premium rates, copayments, coinsurances or deductibles for the length of the contract, with certain exceptions, like the parties to the contract agree in writing. The law was passed because a health plan changed the premium rates after the open enrollment period closed. The law applies only to large group plans and policies, and grandfathered small group plans and policies. According to an article in the Los Angeles Times, in October of 2015, a major health plan settled an $8.3 million lawsuit that was brought because in 2011 the company was altering deductible requirements mid-year. As part of the settlement the plan assumed no wrong doing and argued that neither state law nor their existing contracts prohibited this practice. There were 50,000 affected consumers including one SB 923 Page 5 individual who received a $19,000 award because the individual had paid particularly high out-of-pocket costs. Affected consumers stated that they felt their plan was changing the rules of the game in the middle of that game. SB 923 would apply to all individual market plans and policies as well as non-grandfathered small group plans and policies. Prior Legislation SB 639 (Hernandez, Chapter 316, Statutes of 2013) placed in California law, provisions of the ACA relating to out-of-pocket limits on health plan enrollee and insured cost-sharing, health plan and insurer actuarial value coverage levels and catastrophic coverage requirements, and requirements on health insurers with regard to coverage for out-of-network emergency services. Applies health plan enrollee and insured out-of-pocket limits to specialized products that offer essential health benefits. ABX1 2 (Pan, Chapter 1, Statutes of 2013) and SBX1 2 (Hernandez, Chapter 2, Statutes of 2013) established health insurance market reforms contained in the ACA specific to individual purchasers, such as prohibiting insurers from denying coverage based on preexisting conditions; and make conforming changes to small employer health insurance laws resulting from final federal regulations. SB 961 (Hernandez of 2012) and AB 1461 (Monning), were identical bills that would have reformed California's individual market similar to the provisions in SBX1 2. SB 961 and AB 1461 were vetoed by Governor Brown. AB 1083 (Monning, Chapter 854, Statutes of 2012) established reforms in the small group health insurance market to implement the ACA. SB 951 (Hernandez, Chapter 866, Statutes of 2012) and AB 1453 (Monning, Chapter 854, Statutes of 2012) designated the Kaiser Small Group HMO as California's benchmark plan to serve as the essential health benefit standard, as required by federal health care reform. SB 51 (Alquist, Chapter 644, Statutes of 2011), established enforcement authority in California law to implement provisions SB 923 Page 6 of the ACA related to medical loss ratio requirements on health plans and health insurers and enacted prohibitions on annual and lifetime benefits. AB 2244 (Feuer, Chapter 656, Statutes of 2010), required guaranteed issue of health plan and health insurance products for children beginning in January 1, 2011. SB 900 (Alquist, Chapter 659, Statutes of 2010, and AB 1602 (Perez, Chapter 655, Statutes of 2010), established the California Health Benefit Exchange. AB 2052 (Goldberg, Chapter 336, Statutes of 2002), prohibited a group health plan or health insurer from making any change in premium rates or cost sharing after acceptance of a contract or after the annual open enrollment period. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: Yes SUPPORT: (Verified 4/18/16) American Federation of State, County and Municipal Employees, AFL-CIO California Association of Health Underwriters California Labor Federation California School Employees Association California State Council of the Service Employees International Union California Optometric Association Consumers Union Health Access California Independent Insurance Agents and Brokers of California National Association of Insurance and Financial Advisors National Association of Social Workers-CA Chapter National Multiple Sclerosis Society - CA Action Network Western Center on Law and Poverty OPPOSITION:(Verified 4/18/16) None received ARGUMENTS IN SUPPORT: Consumers Union writes that if enacted SB 923 Page 7 this bill would confer on policyholders the stability that comes with knowing that the health plan consumers diligently researched, and which they determined they could afford and would cover their needs, will remain the same plan throughout the year until at least the next open enrollment period. In so doing, consumers will have the ability to make informed purchasing decisions that will remain valid throughout the plan or policy year. Health Access California writes that this is a clean-up measure and that it was always the intent that both premiums and cost sharing be stable for a year at a time. California patients deserve this basic security. The National Multiple Sclerosis Society - CA Action Network writes that individuals who enroll in a health insurance plan depend on the cost sharing information provided by the insurer to plan and budget for their annual out-of-pocket expenses for medical services and prescription drugs. Consumers are surprised and unprepared when cost sharing increases in the middle of the contract year. Prepared by: Teri Boughton / Health / (916) 651-4111 4/20/16 15:43:41 **** END ***